Mexico - Second Small and Medium Scale Mining Development Project

Docment of The World Bank FOR OFFICAL USE ONLY Report No. 13259 PROJECT COMPLETION REPORT MEXICO SECOND SMALL AND MEDIUM SCALE MINING DEVELOPMENT PROJECT (LOAN 2546-ME) JUNE 30, 1994 Country Operations I and Environmental Division Country Department II Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used bv recipients only in the performance of7 their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Currency Equivalents Currency Unit (until 12/31/92) = Mexican Pesos (Mex$) = 100 cents Currency Unit (beg. 1/1/93) = Mex. New Pesos (NP$) = 1,000 Old Pesos Average Exchange Rates 1984 US$1 = 167.8 1985 US$1 = 257.0 1986 US$1 = 611.8 1987 US$1 = 1,378.2 1988 US$1 = 2,273.1 1989 US$1 = 2,261.7 1990 US$1 = 2,821.0 1991 US$1 = 3,020.5 1992 US$1 = 3,094.7 1993 (October) US$1 = NP$ 3.1 Abbreviations and Acronyms Us ACF Average Cost of Funds to commercial banking system CFM Comision de Fomento Minero (Mining Development Commission) CRM Consejo de Recursos Minerales (Mineral Resources Council) FFM Fideicomiso de Fomento Minero (Mining Development Trust Fund) FNM Fideicomiso de Minerales No-metalicos Mexicanos (Mexican Non-metallic Minerals Trust Fund) GIRA General Interest Rate Agreement between Mexico and the Bank IFC International Finance Corporation MSRP Mining Sector Restructuring Project, Loan 3359-ME NAFIN Nacional Financiera, S.N.C. (National Industrial Development Bank) PCR Project Completion Report PECAM Programa Especial Complementario de Apoyo a la Pequefla y Mediana Minera (Special Complementary Program of Assistance to Small and Medium Mining) SAR Staff Appraisal Report SEMIP Secretarfa de Energfa, Minas e Industria Paraestatal (Ministry of Energy, Mines and Parastatal Industry) SMM Small and Medium Scale Mining  FOR OMCIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of Director-General Operations Evaluation June 30, 1994 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Mexico - Second Small and Medium Scale Minine Development Project (Loan 2546-ME) Attached is the Project Completion Report on Mexico - Second Small and Medium Scale Mining Development Project (Loan 2546-ME). Part II was prepared by the Borrower. The project consisted of three components: (i) a line of credit for investment in subprojects involving mineral exploration, development, exploitation, beneficiation and concentration facilities as well as technical assistance related to such investments; (ii) a line of credit allocated to three public entities for the acquisition of exploration and mining machinery and equipments for leasing purposes, construction and expansion of regional beneficiation plants and expansion of regional laboratory facilities; and (iii) institutional development through consultancy services. An ex-post study on 54 subprojects (accounting for 56% of the total investment) in both the metallic and non-metallic mineral sectors indicated that FNM (Trust Fund for Mexican Non-Metallic Minerals) was successful in enlisting the cooperation of commercial banks and disbursing the bulk of the financing with positive results. In contrast, investments for metallic minerals mining by CFM (Mining Development Commission) and for exploration by CRM (Mineral Resources Council), performed unsatisfactorily. Organizational weaknesses and the Government's decision to privatize certain facilities led to the scaling back of investment in beneficiation plants and the eventual elimination of the leasing program and the acquisition of exploration equipment. The program of investment in laboratories was also reduced substantially. The disbursement for this subcomponent reached only around 11% of appraisal estimates. The project realized little of its institutional development objective because of its flawed design. Despite the unsatisfactory experience with the complex organizational structure created under the First Small and Medium Scale Mining Development Project (Loan 1820-ME), this project continued to rely on the same organization for supervision of lending operations. This project was followed by the Mining Sector Restructuring Project (Loan 3359-ME) in 1991 which supported the Government program of deregulating the mining sector and reforming the organizational structure. The PCR is of satisfactory quality and deals candidly with the implementation experience and the complexity of the project. Because of the relatively positive results in the non-metallic mineral subprojects, the project outcome is rated as marginally satisfactory. The project's sustainability is rated as uncertain and its institutional impact as modest. No audit is planned. Robert Picciotto by H. Eberhard Kopp Attachment This document has a restricted distribution and nay be used by recipients only in the perfornance of their official duties. ts conenl"" may not otherwise be disclosed without World Bank authorzation.   FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT MEXICO SECOND SMALL AND MEDIUM SCALE MINING DEVELOPMENT PROJECT (LOAN No. 2546-ME) TABLE OF CONTENTS PREFACE ............................................. i EVALUATION SUMMARY ................................. ii PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE .... ...... I 1. Project Identity ............................... I 2. Background ................................. I 3. Project Objectives and Description. 4 4. Project Design and Organization. 5 5. Project Implementation. 7 6. Project Results .11 7. Project Sustainability .12 8. Bank Performance .13 9. Borrower Performance .14 10. Project Relationship .14 II. Consulting Services .15 12. Project Documentation and Data .15 13. Lessons Learned .16 PART Il: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE ... ... 17 PART III: STATISTICAL INFORMATION ....................... 19 1. Related Bank Loans ............................ 19 2. Project Timetable ............................. 20 3. Loan Disbursements ........................... 21 4. Financing at Appraisal .......................... 22 5. Project Costs by Component ...................... 23 6. Project Financing by Source .23 7. Project Finance by Source and Use .24 8. Use of PECAM Funds by Implementing Agency .25 9. Project Results .26 10. Status of Covenants .32 11. Use of Bank Resources .34 12. Table I: PECAM Organization Chart .35 13. Table TI: PECAM Flow of Funds Diagram .36 ANNEX I: Original Spanish Version of Part II ..................... 37 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.l   PROJECT COMPLETION REPORT MEXICO SECOND SMALL AND MEDIUM SCALE MINING DEVELOPMENT PROJECT (LOAN No. 2546-ME) PREFACE This is the Project Completion Report (PCR) for the Second Small and Medium Scale Mining Development Project in Mexico, for which Loan 2546-ME in the amount of US$ 105.0 million equivalent was approved by the Bank on May 21, 1985. The loan was closed on December 31, 1992, one year behind schedule. The last disbursement application was received on April 30, 1993 and was disbursed on May 12, 1993. Forty-four thousand dollars were canceled. The Project Completion Report was prepared by the Country Operations Division I of the Latin America and the Caribbean Regional Office (Preface, Evaluation Summary, Parts I and 111). The Borrower agreed to prepare Part If simultaneously with preparation of Parts I and IIl by the Bank. This was reconfirmed by NAFIN in May 1992. Part 11 has been prepared by the Government and will be officially transmitted to the Bank following submission of the PCR to the Government. Preparation of this PCR was started in December 1992, and it is based, inter a/ia, on data obtained during a one week mission in December 1992, the Staff Appraisal Report, the Loan, Project, and Guarantee Agreements, Project Supervision Reports. correspondence hetween the Bank and the Borrower. interviews of Bank staff involved in the implementation of the project, the Project Completion Report for the First Small and Medium Scale Mining Development Project (Loan 1820- ME), and internal Bank memoranda.   ii PROJECT COMPLETION REPORT MEXICO SECOND SMALL AND MEDIUM SCALE MINING DEVELOPMENT PROJECT (LOAN No. 2546-ME) EVALUATION SUMMARY Objectives 1. The objectives of the Second Small and Medium Scale Mining Development Project (PECAM II) were to expand the Bank's support of Mexico's Program of Assistance to Small and Medium Mining (PECAM I), initiated in 1980 under Loan 1820-ME, by providing credit and technical assistance to enterprises for exploration and mine development, construction and modernization of support facilities, and institutional strengthening for the participating agencies. In addition, the project was designed to encourage commercial bank lending to Small and Medium Scale Mining (SMM), with FNM (Mexican Non-Metallic Minerals Trust Fund) and CFM (Mining Development Commission) acting as second tier credit institutions. The project was to be managed by the Coordinating Committee of PECAM, supported by a Technical Secretariat, which was to supervise project management, credit review and loan approval along with the provision of technical assistance (para. 3.1). 2. Loan 2546-ME had three components: credit to SMMs, credit to the Implementing Agencies, and institutional strengthening for the Implementing Agencies. The credit to SMMs was destined for three uses: (i) financing of fixed assets and permanent wvrking capital via CFM and FNM, (ii) financing of exploration activities via CRM, and (iii) financing of technical assistance to SMM investment projects. The credit to Implementing Agencies was intended for (a) the purchase of equipment to be leased to SMMs, (b) construction and expansion of regional beneficiation plants, (c) purchase and utilization of exploration machinery to assist SMMs and (d) the construction, expansion, and modernization of laboratories. The final component, institutional strengthening and technical assistance for the Implementing Agencies, included funds for studies on issues affecting the development of SMMs, financing of computer systems, and consulting costs for implementation of institutional action plans (para. 3.2). 3. The project was appraised and approved during a time of prolonged macroeconomic instability and restricted access to credit in Mexico (paras. 2.1 to 2.11) and was expected to provide financial assistance to 200 small and medium mines, with an annual incremental mining output of approximately US$ 110 million. Implementation Experience and Results 4. The loan was approved by the Board on May 21, 1985 and signed on October 5 of the same year. Effectiveness was declared on April 2, 1986 following a significant delay. The original closing date of December 31, 1991 was extended for one year to December 31, 1992 reflecting delays in project implementation due in part to an inadequately funded Special Account which created a relatively slow start in implementation. In 1988, the Bank approved an increase in the size of the  iii Special Account from US$8 million to US$12 million to enable higher levels of project activity (para 5.1). 5. Following the resolution of start-up problems, the project proceeded to help finance loans on schedule and to meet the primary objective stated in the Appraisal Report. An ex-post evaluation of 54 subprojects comprising 56% of PECAM II investment was conducted by the Government in 1993. The study findings indicate that the 490 enterprises financed under the project created an estimated 4,900 new jobs. Incremental production was estimated at nearly 1 million tons per annum, representing over 5% growth in sectoral output. These initial estimates of subproject performance indicate a positive economic impact which met targets set during appraisal (para. 5.3). 6. One of the Implementing Agencies was responsible for this success. The FNM, or the Mexican Non-metallic Minerals Trust Fund, acted as a second-tier institution channeling funds via commercial banks and achieved a high degree of success in helping to expand the growth of non-metallic mineral mining and processing (para. 5.5). 7. Two other components of the loan, direct credits for metallic mining development (via CFM) and credits for exploration (via CRM), performed highly unsatisfactorily. Among the factors which caused these negative results were (i) technical and conceptual errors in mineralogical project evaluation, (ii) over-levering of subproject financing, (iii) poor matching of institutional capability with project objectives and instruments, (iv) over-reliance on technical assistance to remedy institutional weakness, (v) overly complex project institutional design, and (vi) the adverse international price conditions for key metallic minerals (paras. 5.6 to 5.8). 8. The Coordinating Committee of PECAM along with its Technical Secretariat charged with coordinating and monitoring the Implementing Agencies never functioned as planned and was dissolved mid-way through the project (para. 5.15). In addition, CFM management was replaced and its activities integrated into FNM to create a new institution serving both metallic and non-metallic mining, the Fideicomiso de Fomento Minero (FFM). These changes opened the doors for resolution of outstanding compliance issues and broader sectoral dialogue (para. 6.3). Sustainability 9. The overall economic impact of the project to date has been positive, meeting appraisal estimates, with substantial production increases and job creation accruing to the non-metallic mining sector (para. 5.3). The outlook for sustained project impact is good due to the major reforms undertaken in sector policy and institutional framework since 1989 with the support of the Mining Sector Restructuring Project approved in 1991 (para. 2.10). Financial support to the sector has been consolidated in the FFM, a technically and financially sound institution managing a well-performing portfolio of second-tier credits. In the long-term, FFM's viability will depend on its ability to mobilize financial resources and increase the interest of commercial banks in lending to SMMs. The ex-post study indicates that returns on the non-metallic subprojects have been good, in line with appraisal estimates (Part 111.9). Furthermore, the low default ratio for FNM sub- borrowers provides an additional indicator of success. Regarding the CFM and CRM credit components, the high incidence of loan default and technical error in  iv estimating the potential value of mineral deposits indicates that sustainability of these enterprises is very low. 10. Of the original Implementing Agencies, the PECAM Coordinating Committee and Technical Secretariat were dissolved; FNM was made responsible for all mining credit operations and renamed FFM; CFM was dissolved, with credit activities transferred to FFM; and CRM operations have been redirected and focussed. Overall, the institutional arrangements for the sector have been streamlined while tax policy, granting of concessions, and foreign investment regulations have been rationalized (para. 2.10). Findings and Lessons Learned 11. The main lessons learned from experience under PECAM II were: (i) Well-designed mining sector credit projects which are channeled through the commercial banking system using market-based interest rates may efficiently create employment and foreign exchange and have other positive impacts, but only when the highly specific technical and financial requirements of the sector are properly addressed. Issues regarding subproject evaluation and financing should be resolved regardless of the prevailing policy framework for the sector. In the case of this project, the time lag between the extension of productive term credit to the sector and the appearance of economic benefits from sound investments financed proved to be relatively short. (ii) The project could have largely avoided the high losses from CFM and CRM subprojects if the debt financing of mining exploration and high risk first-tier lending for SMM development had been excluded, as had been suggested by the experience of the PECAM I project. (iii) The Bank willingness to finance mining sector activity prior to comprehensive reform enabled the Bank to participate as the policy dialogue emerged. The Bank established credibility by placing senior technical staff and consultants to work with country counterparts during later phases of project implementation, and was thus well-positioned to help shape the new sectoral framework through the Mining Sector Review of 1989. (iv) The viability of complex and partly untried institutional arrangements for a sector project should be carefully assessed in light of the weaknesses of the existing framework and the Government support for necessary changes. Full use of previous project experience is critical in assessing the viability of these arrangements and designing necessary improvements. Operational and technical assistance objectives should be kept simple and easy to monitor in order to reduce the likelihood of institutional failure. (v) First-tier credit programs should not be operated by Government institutions due to the poor incentives for cost controls and commercial project risk evaluation. If the decision is taken to create a financial intermediary under the responsibility of a sector ministry which lacks technical and financial experience in the field, design and implementation of such a project should receive particularly careful monitoring. Second-tier credit programs offer significant advantages because (i) commercial first- tier lenders are subject to market forces in allocation of credit and therefore have the  V incentive for due diligence and (ii) the Government is not liable fbr loan losses even if the commnercial first-tier lender fails to conduct adequate subproject evaluation.  PROJrECr COMPLETION REPORT MEXICO SECOND SMALL AND MEDIUM SCALE MINING DEVELOPMENz PROJIECT (LOAN No. 2546-ME) PART 1: PROJECT REVIEW FROM BANK'S PERSPECrIVE 1. Project Identity Name: Second Small and Medium Scale Mining Development Project Borrower: Nacional Financiera, S.N.C. (NAFIN) Loan Number: 2546-ME RVP Unit: Latin America and the Caribbean Region Mexico Country Operations Division Country: Mexico Sector: Mining 2. Background 2. 1 The Second Small and Medium Scale Mining Development Project (PECAM 11) was prepared and appraised during a period of prolonged macroeconomic instability and restricted access to credit in Mexico. The project was designed to channel resources to an economi. seectr with large potential impact on economic giowilh and expoit eariiings. Thioughout Mexican history, Lhe mining sector has played a key role in economic development. At the time of appraisal in 1984-1985, the mining sector offered a number of attractions: production, fuelled by exports, had continued to expand despite the overall economic contraction; the sector was the third largest fbreign exchange earner, after oil and tourism; and exports had increased by 13% in dQllar terms during 1983 alone. In addition, the industry sustained a competitive position in international terms due to the country's extensive mineral endowment, well-trained workforce, and strong base of technical experts. Despite these advantages, the sector had limited access to capital in a climate of macroeconomic instability and capital flight. 2.2 The crisis experienced by the Mexican economy during the first half of the 1980s, among the most severe that the country had experienced in its history, wds the result of decades of inward-oriented development policies combined with negative external shocks. By 1970, Mexico had exhausted the easier possibilities for import-substitution industrialization which had generated an average 6.2% rate of economic growth from the 1940s to the 1960s. During the 1970s, central administrative controls were increasingly used to allocate the resources available to the economy. This economic control was extended through increasing regulation and direct state ownership of productive resources. 2.3 The high rates of growth, although continuing at an average of 6.2% through the 1970s, masked a growing degree of inefficiency in the economy. Total  2 factor productivity growth, for example, declined from about 4.5% per annum in the 1940s, to 1.0% in the 1950s and 1960s, and to zero growth in the 1970s. Following the financial and economic crisis of 1976, major oil discoveries led to an apparent quick economic recovery. Public external debt grew from US$40 billion in 1979 to US$78 billion in 1981. The ensuing prosperity lasted until 1982, when falling oil prices, rising world interest rates, and massive capital flight led external creditors to refuse to provide further finance to cover Mexico's deficits or to roll over its short-term debt. 2.4 The debt crisis of 1982 forced the incoming de la Madrid administration, which took office at the end of the year, to adopt a stringent stabilization program and to seek external debt relief. The program succeeded in reducing the fiscal and current account deficits and enabled a fragile economic recovery to begin in 1984- 85. Consumer price inflation fell from 102% in 1983 to 64% in 1984 and initial steps toward trade liberalization, privatization, and structural reform were taken. However, at the time of PECAM 11 appraisal in late-1984, the macroeconomic situation was far from stabilized. Per capita income continued to decline, while inflation remained problematic. Consumer prices rose by 58% in 1985. Two major external shocks, the Mexico City earthquake of 1985 and the collapse of oil prices in 1986, soon disrupted this fragile recovery. 2.5 The macroeconomic situation rapidly deteriorated, as annual inflation accelerated to 159% in 1987. In December of that year, the Government negotiated the Pacto, or Economic Solidarity Pact, with representatives of labor and industry, combining fiscal and monetary austerity with agreed wage and price controls. The Pacto was renegotiated in December 1988 as the PECE by the new Salinas administration. The well-balanced Pacto/PECE strategy, which effectively coordinated Government, business, and labor efforts at stabilization, turned out tO be successful, as inflation dropped to 52% in 1988 and an average of 20% during 1989-1992 while output and investment recovered quickly. The Mining Sector 2.6 Mining production in Mexico is widely diversified across 44 mineral commodities. Four minerals, copper, zinc, silver and lead, constitute nearly 60% of sectoral output in terms of value and 64% of sectoral export earnings. The mining industry in Mexico is highly concentrated, with large private and formerly state- owned firms accounting for two-thirds of output. Small mines (annual production not exceeding US$3 million equivalent or 300 tons per day) and medium mines (annual production not exceeding US$15 million equivalent or 1,000-1,500 tons per day for metallic and non-metallic mines, respectively) provide an estimated 33% of total output, including the formerly state-owned medium sized enterprises. Despite significant economies of scale in the industry, SMMs have traditionally been viewed as competitive due to the presence of small, high-grade deposits not economically viable for larger concerns. Although roughly 900 SMMs operate 16,000 separate mining facilities across the country, high bankruptcy rates in recent years may signal a reduced role for SMMs in the future. 2.7 During 1991, the value of non-petroleum mineral production exceeded US$2.6 billion, of which 48% was exported. Although the relative importance of the sectoral contribution to GDP and export earnings has declined as Mexico has diversified economic activity, opportunities resulting from recent Government reforms have attracted increasing investment from both domestic and international  3 investors. Overall investment during 1990-1992 was 2.6 times greater than investment during the previous three years. 2.8 Investors demonstrated strong confidence in the long-term viability of the sector despite low prevailing international prices for key minerals. While production volumes have remained steady, the value of output fell by 17.9% in real peso terms during 1990-1991. Net exports from the sector reached only US$ 666 million during 1991, 25% less than the average for 1987-1989. As the international prices for metallic minerals began to recover during 1993, initial reports indicated that production increased as well. Institutional and Policy Reforms of the Mexican Mining Sector 2.9 The Government established the Special Complementary Program for SMM Development (PECAM) in 1980 with Bank support (Loan 1820-ME) to coordinate and promote technical and financial assistance to the sector. Government policy objectives for the sector in general and for SMMs in particular included (i) economic growth and increased exports, (ii) provision of raw materials for use in industry and construction, (iii) creation of jobs, and (iv) promotion of development in less- developed regions of the country. PECAM's role was to coordinate the activities of the three primary government institutions responsible for developing mining sector policy and for providing investment credits to enterprises: the Mining Development Commission (CFM), responsible for metallic minerals;' the Mexican Non-Metallic Minerals Trust Fund (FNM); and the Mineral Resources Council (CRM), responsible for geologic surveys and exploration. 2.10 During the concluding period of project implementation, the mining sector in Mexico was dramatically restructured by the Government, supported by the Mining Sector Restructuring Project, Loan 3359-ME (see para 2.12). The comprehensive program of reforms initiated in 1990 and completed in 1993 has been broadly supportive of these initial goals and has focussed on the following areas: (i) changes in taxation to encourage efficient resource utilization, (ii) liberalization of trade and foreign investment, (iii) concessioning of government mineral reserves, (iv) privatization of state-owned mining enterprises and beneficiation plants, (v) removal of direct and indirect subsidies, (vi) increased effectiveness in technical assistance to enterprises, and (vii) streamlining of institutional arrangements and procedures. 2.11 The reform process began modestly in 1984 with the National Mining Program of 1984-1988 which articulated the need for reforms in taxation and trade policy. This program was only a partial effort at best, recommending policies such as preferential government procurement to foster import substitution. Nevertheless, the Government affirmed that the medium-term objective of eliminating subsidies to the sector would be combined with a modest program of privatization. During 1988-1990, the government accelerated and expanded the privatization process, nearly eliminating government ownership in the sector. The Mining Law of 1992 and the corresponding Regulations issued in March 1993 completed the series of reforms which have transformed the operating framework fbr the sector. I.CFM was also the state holding company for mining enterprises and beneficiation facilities in the metallic minerals subsector.  4 The Bank Role in the Mining Sector 2.12 The World Bank supported the Government program of assistance to SMM beginning with the First Small and Medium-Scale Mining Development Project (PECAM I, Loan 1820-ME). Approved in 1980, this loan fbr US$ 40 million equivalent was similar in structure to the successor project, PECAM II, and was characterized by mixed performance (see Project Completion Report (PCR) for Loan 1820-ME dated May 15, 1990). The second project, PECAM II (Loan 2546-ME), attempted to resolve several weaknesses of the first project. In particular, PECAM II addressed the weak institutional performance of several implementing agencies via an expanded program of technical assistance. A third Bank project, the Mining Sector Restructuring Project (Loan 3359-ME) for US$ 200 million equivalent, was approved in 1991 and is currently under implementation (see 111.1). This third project was designed to support broad policy changes and institutional reform in the sector. Developed in conjunction with the 1989 Bank Report: Mexico Mining Sector Review (Report No. 7379-ME), the design of this project incorporated a number of lessons learned from the earlier projects and reflected the market-oriented philosophy of the Salinas administration. 3. Proiect Obiectives and Description 3. I The objective of Loan 2546-ME was to expand Bank support for PECAM, building on the concepts and experiences of the PECAM I project. Specifically, the project aimed to: (i) provide financial and technical assistance to SMM enterprises fbr starting or expanding evaluative exploration, mine development and exploitation activities, and mineral beneficiation and concentration facilities; (ii) continue to strengthen the capabilities of the institutions supporting SMM and to foster an effective coordination among them; and (iii) encourage the participation of commercial banks in the financing of SMM. 3.2 The loan was comprised of three components: (a) Credit to SMM. US$ 76 million was allocated to finance: (i) ' Investment in fixed assets and permanent working capital via CFM and FNM for subprojects involving mineral exploration, development, exploitation, and beneficiation and concentration facilities. (ii) Raw exploration activities through CRM. (iii) Technical assistance to SMMs related to investment projects. (b) Credit to Implementing Agencies. US$ 26 million was allocated to CFM, FNM and CRM for: (i) Acquisition of mining machinery and equipment by CFM to expand leasing to SMMs. (ii) Construction and expansion by CFM of regional beneficiation plants.  5 (iii) Acquisition and utilization of mineral exploration machinery and equipment by CRM to assist SMMs. (iv) Expansion and modernization of the regional laboratory facilities of CFM and CRM and construction of such facilities for FNM. (c) Institutional Strenzthenin2/Technical Assistance. US$ 3.0 million for: (i) Purchase of office equipment and consultancy services to prepare and implement Action Plans for each of the Implementing Agencies. (ii) Prepare program of studies on issues affecting the development ot SMM. 3.3 At appraisal, the total project cost was estimated to be US$ 210 million, with 50% of the funds expected to be sourced from local counterparts as follows: US$ 75.6 million from the Government of Mexico, US$ 9.4 million from PECAM and the Implementing Agencies, and US$ 20 million from the SMMs. Of the US$105 million Bank Loan, US$55 million was expected to be onlent by CFM, US$42 million by FNM and US$5 million by CRM. An additional US$3 million was earmarked for technical assistance to the Participating Institutions. Bank financing would cover the estimated foreign exchange requirements of the project (US$84 million) and US$21 million in local costs. The project was expected to extend financial assistance to 200 SMMs, with an annual incremental mining output of approximately US$1 10 million (Part 111.4). 4. Projeit Design and Organization 4.1 In line with the findings of the appraisal missions of November 1984 and January 1985, the institutional structure of PECAM I established under Loan 1820- ME was continued under PECAM 11. The Technical Secretariat of PECAM would continue to be the institution responsible for: (i) channeling and rechanneling Bank loan and Government funds for the program; (ii) coordinating mining sector promotional activities among agencies; (iii) reappraising loans presented for financing by the first and second tier lending institutions; (iv) providing a second tier of supervision and due diligence activity, ex-post project analysis and reporting for the program. Responsibilities including project management, credit review and loan approval, and technical assistance program coordination were vested in PECAM's Technical Secretariat which was supported by a Technical Secretariat (See Table 1, Part 111.12, for PECAM organizational chart). 4.2 The three other mining sector agencies were to administer the directed credit program as follows: (i) the CFM was to finance metallic SMM projects directly, and to support a program of equipment leasing (it was expected that CFM would also develop the capacity to serve as a second tier facility); (ii) the FNM was to act as a second tier facility financing non-metallic SMM projects through commercial banks; and (iii) the CRM would directly finance SMM exploration activity. The PECAM Technical committee was given important credit approval rights, as the free  6 limit for the lending institutions (autonomous loan approval authority) was a low US$ 50,000 and could be further reduced at the option of the Technical Secretariat of PECAM depending on the subloan appraisal capability of individual participating intermediaries. Table II (Part 111.13) defines the flow of funds, authorizations and the paper trail associated with a typical transaction under the three-tiered institutional arrangements established for PECAM. 4.3 The financial terms of the subloans were designed in accordance with the GIRA (General Interest Rate Agreement) between Mexico and the Bank. Onlending rates were to be determined in relation to the current average cost of short term borrowing to the banking system (Average Cost of Funds, or ACF). Initially, onlending raLes for small miners (as defined in para. 2.6) were set at 80% ot ACF and rates for medium miners were set at 90% of ACF. Under the GIRA, these rates were to be gradually raised to two percentage points above ACF over the 1985-1987 period. Participating commercial first-tier lenders would retain a spread of 2.5-3.0 percentage points. 4.4 The Loan provided for the cofinancing of a wide range of technical assistance programs, 19 in all, which were designed to (i) address the training needs of PECAM, (ii) develop accounting and information systems, and (iii) procure and install computer and laboratory equipment for the participating line agencies. The Loan also provided for construction of new CFM beneficiation facilities and upgrading of the existing network. Based on the experience under PECAM 1, major compliance conditions included the profitable operation of beneficiation plants and improved audits, accounts, and records (Part 111.10). 4.5 The PCR of Loan 1820-ME reported that the performance of the PECAM Technical Secretariat was inadequate and that it had not lived up to the objectives established in the Staff Appraisal Report (SAR). Specifically, the Technical Secretariat had not been appropriately staffed to effectively assist a credit project and added little more to the project than additional layers of bureaucracy (PCR, Loan 1820-ME. paras. 2.08-2.16). According to the PCR. a Bank supervision mission fielded in September 1984 (i) reported that PECAM was not capable of fulfilling its role and was an impediment to project progress; (ii) questioned the need for the Technical Secretariat of PECAM; and (iii) recommended reducing the institution's role from operational to advisory. Apparently, these findings were not considered to be pertinent by the res'ponsible manager and not reflected in the SAR; the Technical Secretariat's role was expanded in the second project (para. 5.14). 4.6 One criticism of Loan 2546-ME voiced in the SAR for the successor project (Loan 3359-ME) is that the project's principal focus on directed credit was inappropriate given the urgent need fbr reform of sectoral policies (Report 9428- ME, paras. 3.1, 3.2). Clearly, the sectoral policy and institutional framework plays a key role in the effectiveness of the project. The experience of the non-metallic subloans under Loan 2546-ME, however, indicates that a well-designed directed credit program using market-based interest rates may be reasonably effective even in a sub-optimal policy environment. In any case, the inclusion of broad sectoral reforms in the scope of the project was simply not an available option at the time of preparation and appraisal of the project under review. In this sense, the project's focus on financial and technical assistance to the sector was not misdirected. The main project shortcomings resulted primarily from institutional factors which were not sufficiently addressed during project preparation rather than the inclusion and implementation of the directed credit component per se.  7 5. Project Implementation Operation of Credit Programs 5.1 Total investment by the 490 enterprises that participated in PECAM 11 amounted to US$238 million, substantially higher than the US$159 million estimated in the SAR (See Part 111.7). The Bank's contribution to the credit program was US$98.8 million (94.1% of Loan 2546-ME), somewhat higher than the SAR estimates due to the reduction of Bank financing of Category 11 activities. Actual investment in the mining sector was much larger than anticipated by the Bank because the SAR, based on PECAM I experiences, assumed that mining enterprises would borrow on a highly levered 5 to I basis which proved to be unrealistic. During a prolonged period of tight credit, high interest rates, and conceins about loan performance, participating commercial banks sought leverage ratios of about one to one and mining enterprises made much larger than anticipated financing contributions. The arrangements for onlending interest rates performed adequately. In accordance with the GIRA, the interest rate subsidy was gradually lowered. The interest rate cap which applied to first-tier lenders under PECANI may have reduced commercial bank enthusiasm for participation in the program but did not play a major role in slowing disbursement undel the loan. Following, the increase of the Special Account from US$ 8 million to US$ 12 million in 1988, disbursement under the loan rapidly returned to levels estimated during appraisal (Part 111.3). 5.2 US$69.3 million in Bank credits (68.9% of total Bank credits) were channeled via FNM through five participating commercial banks to finance non- metallic mining enterprises. Most of the balance of the credit component (US$29.2 million) was used by CFM to directly finance metallic mining projects. CFM lending under PECAM 11 fell short of SAR estimates as legal issues emerged which prohibited CFM from operating as second-tier lender as planned in the SAR. CRM used the remaining US$1.4 million of the credit component to finance exploration projects (Part 111.7). 5.3 The project met SAR estimates for increased output and employment in the overall mining sector due to (i) the greater than expected impact of credits to the non-metallic mining sector and (ii) the increased proportion of total resources directed to the non-metallic subsector as compared with SAR estimates (64.9% actual vs. 40.8% at appraisal). Based on an ex-post study of 54 subprojects comprising 56% of total PECAM 11 investment, sectoral output increased by an estimated 5% while an estimated 4,900 new jobs were created and over 12,000 additional jobs were preserved.' The estimated ex-post project impact should be considered a positive economic event which met overall appraisal estimates. An unmeasured gain would be the positive balance-of-payments impact which resulted from the export of incremental production of metallic and selected non-metallic mineral products. 2.An ex-post study of 54 sub-projects representing 56% of total project cost was conducted by FFM during 1993. Thirty-one enterprises representing 54% of PECAM II non-metallic mining credits were included in the study. The sample of non-metallic SMMs may be considered reasonably representative of the overall non-metallic subgroup. Twenty-three enterprises representing 63% of total project financing for metallic mining were included in the study. Thc study indicatcs that only 40-45 % of all CFM subprojects yielded any productiw results. See Part 111.9 for further presentation of ex-post data and analysis.  8 Non-metallic minerals 5.4 A total of US$91.5 million equivalent in GOM and Bank funds was channeled through FNM under PECAM 11. The ex-post study mentioned above (para. 5.3) included 31 enterprises (out of 263 total) comprising 54% of PECAM 11 financing to the non-metallic subsector. Despite the inclusion of relatively large SMMs in the sample. the Government considers the study to be broadly representative of subproject experience under the Loan. 5.5 The non-metallic subprojects were well implemented. Tight controls kept costs down during the development phase: FNM subprojects included in the ex-post evaluation survey reported costs 2.3% less than the original amount budgeted at the time of subproject appraisal. Cost escalations in acquisition of land and mineral rights were compensated by savings in pre-operating expenses. Other categories of expenditure were within 10% of budgeted amounts. The technical evaluation ot these projects also proved to be of high quality. Proven and likely mineral reserves exceeded projects estimates by nearly 5%. Good technical project evaluation combined with tight cost controls has yielded strong financial performance of these subprojects. Return on sales (9.0%) and return on investment (18.7%) have been on target with estimates made during appraisal of individual subprojects. The first tier institutions have indicated a strong repayment record for the portfolio (see Part 111.9 for presentation of ex-post data). Metallic Minerals 5.6 The CFM first-tier credit program for metallic minerals, which comprised 27.9% of total PECAM 11 financing or US$39.3 equivalent, provides a striking contrast to the success of the FNNI second-tier portfolio. Subproject evaluations conducted in 1990 and in 1993 after loan completion shared the same conclusion: over 50% of all CFM subprojects (in value terms) were complete failures and did not yield any economic or productive value. 5.7 The ex-post evaluation study conducted in 1993 surveyed a sample of only 23 out of 201 total CFM subprojects. However, due to the relatively large size of the firms surveyed, the sample accounted for 63% of the total CFM portfolio in value terms. Twenty-one of these subloans, representing 40% of the CFM total portfolio, were reporte'd to he current with debt repayment and interest obligations at the time of the study. FFM officials indicated that these 21 firms account for nearly all the performing subprojects and that information on the remaining subprojects was not available because most were either not operating or the current owners were not willing to participate in the survey due to pending legal proceedings on loan Mollections. 5.8 Although the survey included only the most successful CFM projects, the data indicate severe problems in project technical evaluation and financial management. Technical evaluation of the CFM subprojects was highly deficient, as indicated by the 40% shortfall in proven and likely reserves when compared with estimates made during subproject appraisal. Financial management was also poor: total costs were 60.3% above budget, with expenditure for machinery and equipment (71.5% over budget) and pre-operating expenses (98.6% over budget) representing the greatest variances. Financial performance of even the relatively successful projects has been well below projections. Return on sales (7.9%) and return on investment (2.4%) were well below estimates made during subproject appraisal  9 (10.9% and 20.4%, respectively). The net effect of project mis-management, poor technical evaluation and low international prices has been severe: only 6.3% of all CFM subprojects (now transferred to FFM) representing 17% of total capital investment are considered to be performing.3 5.9 An earlier review of the PECAM II portfblio played an important role in the course of project implementation, setting into motion a series of organizational and operational changes in the project implementing agencies. In 1990, a new CFM management team, assisted by the Bank, discovered that an extraordinarily high 71% of the 184 subprojects financed under PECAM II were non-performing. The detailed evaluation of the troubled portfolio was conducted bv a team of independent exploration geologist/economists who discovered numerous errors stemming from weaknesses in CFM geological, geochemical and mine engineering appraisal capabilities. 'I'hese errors included mis-estimations ot the type and quality ot ore and mis-estimations ol the size, location and value of ore bodies. In addition to the technical errors, management of participating enterprises was often poor. One hundred and twelve projects (60.8% of all CFM projects) demonstrated unsatisfactory management, which took the form of: (i) misapplication of credit, (ii) excess investment for the stage of mine development, (iii) poor fiscal administration, and (iv) legal and social difficulties. 5.10 Contributing to the problems of the CFM portfblio was the fact that as many as 97% of all projects hnanced included some percentage of silver in the ore body and that many of the projects were undertaken when silver prices were in the range ol' US$ 8 to US$ 9 per ounce. In November 1990, the price of silver dropped below US$ 5 per ounce and continued on a downward trend to reach US$ 3.90 by year's end. At those low prices, even many of Mexico's well-established and efficient mines slipped into the red. 5.1 1 The net eflfect of the 1990 findings was to cause CFM's management lO rethink its organizational structure, including the extensive network of field offices. CFMI management initiated a series of' actions designed to address the heretofore unidentified technical weaknesses of CFM geologic personnel in evaluating investments in the sector. These actions included a plan to use qualified external consultants with private sector exploration experience, recruit trained credit officials to work in field offices, and increase training of CFM staff geologists. Finally, CFM was terminated,'and all direct lending activities were incorporated into the new FFM (Mining Development Trust Fund) which combined FNM and CFM lending operations.4 Exploration Activity 5.12 The CRM program to directly finance mining exploration also suffered from poor project design and implementation. The debt financing of exploration is rarely considered "bankable'' ue to the high risks involved. Under PECAM 1, CRM was able to recover less than 10% of outstanding loan balances on exploration lending. Exploration financing was extended into PECAM II, and CRM, unsurprisingly, experienced similar difficulties in portfolio performance. CRM had little recourse to 3.As of June 30, 1993. Total includes PECAM and non-PECAM operations. 4.CFM was formally dissolved as of December 31, 1992. The privatizationvf CFM's portfolio of metallic mining enterpnses was completed prior to that date.  10 collect because the failed exploration projects had nothing of value to offer. Government officials indicate that collections on these projecLs have been minimal. Credit to Implementing Agencies 5.13 Investment under Part II of the loan, intended to support machinery and equipment leasin, and purchase, construction and rehabilitation of state-owned beneficiation plants, and expansion and modernization of regional laboratories (para. 3.2), reached only 11% I of appraisal estimates. Investment in beneficiation plants was quickly scaled back due to the government's correct decision to privatize or liquidate all facilities. Disbursement for this subcomponent reached only US$ 2.8 million compared to US$ 24 million estimated during appraisal. Organizational weaknesses slowed the development of the equipment leasing program, which was eliminated completely following the reorganization of CFM. Only US$ 1.2 million out of an appraised US$ 13 million was disbursed for this activity. The program of investment in laboratories was reduced as well due to the reorganization: consolidation of all labs under CRM cut the number of facilities required. The CRM program to acquire exploration equipment was also eliminated during the reorganization. No expenditure took place for this activity (Part 111.5). Technical Assistance to Implementing Agencies 5.14 The technical assistance component of PECAM II was designed to strengthen the participating institutions in line with the complex organizational structure created under PECAM 1, enabling the PECAM Technical Secretariat to provide coordination among the participating institutions and reduce the number of agencies which the Bank would supervise under the loan. However, neither the Technical Secretariat, CFM, or CRM were able to implement the program of institutional strengthening, thus confirming the September 1984 PECAM I supervision mission findings (para. 4.5). 5.15 The Technical Secretariat was the core of the PECAM organizational structure as conceived at appraisal. However, the Technical Secretariat never did achieve the structure or skills base necessary for sound supervision of lending operations. Secretariat staff lacked experience in project finance and were not designated to PECAM on a full-time basis. The Technical Secretariat of PECAM was staffed and housed by SEMIP, the ministry responsible for energy, mining, and parastatal enterprises, which was better equipped for sectoral promotion than project supervision. Unable to act as an effective second-tier banker on behalf of the first tier banks, PECAM was equally unable to compensate for institutional weaknesses in CFM and CRM. The Technical Secretariat of PECAM was from the outset an inappropriate setting from which to control a credit project. The major conclusions reached in this PCR regarding the operations of PECAM II confirm the findings of the Mining Sector Restructuring Project SAR (MSRP, Loan 3359-ME, Report 9428- ME, para. 3.14), which stated that the PECAM II coordination and credit committee functions proved to be of little value and would not be included in the successor project. 5.16 By the end of 1988, about midway through the project, the PECAM Technical Secretariat and the original institutional structure for the loan had virtually disappeared, and CFM's new senior management assumed responsibility for the credit operations of both CFM and FNM. These actions anticipated the strategy for restructuring the development banking system agreed upon the following year in the  I1 context of the Bank's Financial Sector Adjustment Loan (Loan 3085-ME). At this time, technical assistance was redirected in line with the realities of the institutions, the requirements of the Mining Sector Review, and the preparation of the MSRP. The Bank and the Government began to address the central issues of sector policy through an open, objective and searching review of: (i) the performance of CFM and FNM as lending institutions under the Bank loans, (ii) the quality of CFM's loan portfblio (para. 5.9), and, in light of the findings of the review, (iii) the measures that would need to be taken to improve CFM's institutional performance. 6. Project Results 6.1 Despite the flaws in project design and difficulties during implementation, PECAM II proceeded to achieve overall success in pursuit of the project's primary goal: the expansion of mining sector output through credit financing (Para 3.1(i)). The high degree of success which the project achieved in the non-metallic mining sector more than offset the high failure rate in the metallic minerals mining sector. Ex-post subproject production data confirm that overall production and employment increased as a result of the project (see para. 5.3). However, the project failed to fulfill the second project objective, the strengthening of sectoral institutions, fbr two main reasons. First, two principal institutions (PECAM Technical Secretariat and CFM) were deeply flawed and not subject to a quick fix; and secondly, the institutional arrangements were based on the continuance of sectoral policies (e.g., state participation in ownership of mining enterprises and beneficiation plants) which were radically reformed during the life of the project, with the technical and financial assistance of the Bank. The third goal, the encouragement of commercial banks in the financing of SMMs, was met only by FNM. While FNM built a strong portfolio of second-tier loans, CFM never gained the legal authority to offer credit via first-tier commercial lenders. 6.2 During 1989, the Bank and the Government began to address the problems facing PECAM as well as the broader policy issues affecting the sector as a whole through enhanced supervision activity and implementation of the recommendations of the Mining Sector Review (Report No. 7379-ME). In preparation of Loan 3359- ME, the Bank fielded missions comprised of staff and consultants with strong geologic and mining ehgineering experience, financial consultants that knew banking and had structured mineral ventures, economists that had dealt with the technical aspects of mining sector policy reform, and environmental experts that knew the industry and its standards. 6.3 The findings of this sector policy and institutional review were implemented under the successor Bank project, the MSRP, and included (i) elimination of the PECAM Technical Secretariat, (ii) redirection of technical assistance to advance the sectoral reform program and the strengthening of the new institutional framework, (iii) privatization of CFM holdings in beneficiation and mining operations, (iv) consolidation of CFM and FNM credit operations in the Fideicomiso de Fomento Minero (FFM), and finally (v) the refocussing of CRM toward geologic survey work. The performance of the new FFM and reoriented CRM has been very strong under the MSRP. One might argue that ultimately the institutional development objectives of the project were fully met although the implementation actions were completely different from what had been envisioned six years earlier when the project was presented to the Board.  12 7. Project Sustainability 7.1 The financial and economic impact of the project to date has been positive on balance, increasing total sector output and employment while boosting foreign exchange earnings (para. 5.3). The portfolio of sub-projects has had a sharply different perfbrmance fbr non-metallic and metallic mineral subloans, as discussed above. To assess the long-term sustainability of the project, however, performance should be considered in light of the changing sector operating environment. Domestic and international factors which impeded enterprise performance should be weighed against the likely constraints to future growth. 7.2 Three factors specific to the mining sector inhibited project performance during the implementation phase: (i) the regulatory structure for taxation, foreign investment and concessions prior to reform, (ii) the weaknesses of the institutional framewvrk for the sector prior to reform, and (iii) the historically low international prices for metals, particularly silver. 7.3 Regarding factors (i) and (ii), the comprehensive reforms of both the regulatory and institutional environment for the mining sector in Mexico has already shown positive results. Overall investment during 1990-92 was 2.6 times greater than investment during the previous three years. Foreign investment, which introduced new technologies and techniques was particularly strong. The high degree of policy consensus in Mexico and the recent ratification of the North American Free Trade Agreement (NAFTA) should help ensure that these reforms will continue to benefit project performance in the future. Regarding the third factor, the impact of (a) low international rates of economic growth and (b) technological change upon international commodity prices is more difficult to assess; however, prices for commodities such as silver have fallen to historically low levels. As a low-cost producer of silver and other minerals, the Mexican mining sector should maintain competitiveness in the future. 7.4 The long-term sustainability of the credit component has been enhanced by the consolidation of the second tier facility under the FFM, an effective and well- staffed institution which facilitates the financing of all mineral sector projects through the banking system. Despite the gains made by FFM, however, the long- term viability of the SMM sector, and particularly the metallic subsector, is highly uncertain. The extraordinarily high failure rate of PECAM II metallic subprojects reflects not only the institutional weakness of the former CFM but also the risks associated with investing in small and medium metallic mines. 7.5 With new and considerably improved regulations and policies in place the future of the mineral sector overall is favorable. However, SMMs have not participated in this resurgence and continue to experience difficulty in obtaining investment capital. Current pressures facing the enterprises are great: the high prevailing real peso-denominated interest rates increase project hurdle rates while the strong peso reduces international competitiveness. In addition, SMMs face competition from larger enterprises with access to comparatively cheap dollar- denominated financing and foreign joint venture partners. Press reports indicate a high rate of metallic SMM failures since 1990. Further investigation would be needed to determine the viability of the metallic SMM sector in the post-deregulation environment.  13 7.6 The MSRP continues the program of Bank support to SMM in Mexico. This project includes a directed line of credit administered by FFM and extensive technical assistance to assist and support SMM development. The Directorate General of Mines also receives institutional support under the ongoing project. In addition, FFM has undertaken efforts to establish regional venture capital funds to increase equity financing of the sector. 8. Bank Performance 8.1 Loan 2546-ME resulted in expanded SMM production, job creation and generation of foreign exchange in the non-metallic subsector (para. 5.3), but the experience in the support for metallic mineral projects was dismal (para. 5.6). In addition, PECAM 11 was beset by a number of operational and institutional problems, as discussed above (Sections 5 and 6). Inadequate management and staffing on the part of the Bank during the identification, preparation and early supervision stages of the project cycle was an important cause of these problems. Critically, key Bank project staff during these phases displayed weak technical and financial skills. 8.2 The Bank's involvement in directed credit to the mining sectors was initiated in 1980 starting with the preparation of PECAM I. The high default ratios exhibited by PECAM I lending through CFM, which according to official CFM accounts rose from 13.7% to 18.3% from 1983 to 1984 (SAR, Annex 6, p. 49), indicated that something was seriously wrong with the project's investment risk policy and/or CFM's geologic evaluation skills. A weakness of Bank performance in the preparation of PECAM II was that it did not adequately take into account the underlying reasons for PECAM I's non-performance. 8.3 PECAM I's problems were identified in the PECAM II SAR as moderate and repairable through technical assistance. PECAM n moved rapidly through the management review cycle (Part I11.2) and emerged essentially unchanged with regard to the credit components. Although the specific causes had not yet been identified, the high default ratio under PECAM I indicated that major problems existed in the CFM program. 8.4 Starting in 1987 the Bank took measures to strengthen oversight of the project and to identify compliance and operational issues, bringing to the project appropriate senior technical and financial advisors through an expanded program of supervision. In close collaboration with the new Mexican administration, the major project problems were studied and solutions proposed. With the benefit of a major Bank Mining Sector Review (Report 7379-ME), the Government and Bank acted very rapidly to eliminate the PECAM Technical Secretariat and redirect the project's technical assistance program to promote restructuring of the sector's institutions (para. 5.16). The MSRP, signed in 1991, and the 1992 Mining Law were the direct result of the Bank-Government dialogue initiated under PECAM II and strengthened during the Mining Sector Review.  14 9. Borrower Performance 9.1 The performance of the Borrower and some of the implementing agencies, although mixed during the preparation and implementation phases of the project, was satisfactory overall considering the initial project design weaknesses and the subsequent bold and comprehensive sectoral reform program undertaken by the Government. In addition, Borrower performance during project preparation and initial implementation phases should be understood in the context of severe macroeconomic instability entailing high and variable inflation, negative economic growth, and monetary and credit restrictions (para. 2.4). The Borrower performed well the tasks related to coordinating Bank contact with the Implementing Agencies, which included the administration of funds, project correspondence and monitoring. 9.2 Following signing of the loan, effectiveness was significantly delayed due to the lack of available Government counterpart financing during a period of macroeconomic difficulty and pronounced budgetary constraint. Following loan effectiveness, the implementing agencies performed their functions with varying degrees of success. As mentioned above, FNM was highly successful in assisting the non-metallic mining sub-sector via second-tier credits to the commercial banks. The low loss ratios for the FNM program, which constituted 68.9% of all credits financed under the loan, form the basis for the project's overall success. 9.3 The other implementing agencies, CFM, CRM and the Technical Secretariat performed much worse than FNM. The Technical Secretariat was characterized by poor communication and coordination with the implementing agencies, weak capacity as project review committee, and high staff turnover rates. The PECAM Technical Secretariat never became fully operational and was effectively dissolved during 1988. The CFM- and CRM-implemented credit programs for metallic minerals and exploration, respectively, performed poorly. Weak project technical evaluation capacity resulted in the financing of numerous uneconomic projects. CRM lacked the capacity to serve as a first- or second-tier intermediary and deal with due diligence and loan collection issues. 9.4 The weak performance of these implementing agencies should be considered in the context of (i) their reduced role in the final project compared with the successful FNM component (para. 5.3), (ii) the inappropriateness of the institutional design of the original project (para. 5.15), and (iii) the difficult macroeconomic situation encountered during most of the implementation period (para. 2.4). Taking these factors into consideration, the Borrower's and implementing agencies' performance under the loan agreement may be considered acceptable. 10. Project Relationship 10.1 The Bank maintained a close working relationship with the Borrower and implementing agencies over the course of project appraisal and implementation. Interaction between the Bank, Borrower, and implementing agencies proved critical to project operations. In particular, early delays in project implementation were reversed through a series of corrective actions which included increasing the size of the Special Account (para. 5.1). Close communication enabled the Bank to work with the Government on reorienting the technical assistance portions of the loan in  15 accordance with the sectoral stategy developed following the Mining Sector Review of 1988. 10.2 During project preparation and appraisal, however, both the Bank and Borrower should have been more attuned to the shortcomings of the institutional arrangements under PECAM I and attempted to develop corrective actions. Both institutions should have been more realistic in assessment of the technical assistance component and instead opted for a more streamlined institutional design. 10.3 The Borrower and CFM's new management adopted an open and very objective attitude toward the project in late 1988 and 1989, exhibiting a willingness to examine each shortcoming in project and institutional performance. This deveopment directly led to sharp changes in program perfbrmance and the elimination of all first tier lending operations. One of the implementing agencies, FNM, should also be commended for efforts to increase commercial banking activity in the sector. By promoting second-tier credits, FNM played a strong role in attracting the interest of commercial bankers and helping them to develop the technical skills and experience necessary to service the sector's credit needs effectively. 11. Consulting Services 11.1 The use of consultants by the Bank was on balance very useful during project supervision; however, use of qualified consultants with sector-specific skills and experience during identification, appraisal and early supervision could have proven helpful in evaluating the project's institutional and financial provisions 11.2 Consultants were used by the implementing agencies to develop and install computer and accounting systems. Following the institutional reorganizations which began in 1989-1990, these services were effectively used to enhance the performance and reliability of financial, accounting and other information systems. 12. Proiect Documentation and Data 12.1 Documentation and data for the project include the Loan, Guarantee, and Project Agreements, the SAR, the Supervision and Back-to-Office Reports from the supervision missions, audits and progress reports received from the Borrower, and other project related correspondence. 12.2 The project legal agreements and the Staff Appraisal Report generally assisted project start-up and implementation as conceived at the time. However, these documents failed to identify that CFM lacked the legal authority to act as a second tier institution and therefore was not legally able to serve in the capacity foreseen during appraisal. Supervision reports provided detailed information on the issues addressed during project implementation. 12.3 The Borrower and the successor to the project implementing agencies provided ample data-gathering assistance during the PCR mission conducted in  16 December, 1992. A study of CFM and FNM sub-project performance was prepared by FFM and submitted to the Bank on October 18, 1993. 13. Lesson Learned 13.1 The main lessons learned from experience under PECAM II were: (i) Well-designed mining sector credit projects which are channeled through the commercial banking system using market-based interest rates may efficiently create employment and foreign exchange and have other positive impacts, but only when the highly specific technical and financial requirements of the sector are properly addressed. Issues regarding subproject evaluation and financing should be resolved regardless of the prevailing policy framework for the sector. In the case of this project, the time lag between the extension of productive term credit to the sector and the appearance of economic benefits from sound investments financed proved to be relatively short. (ii) The project could have largely avoided the high losses from CFM and CRM subprojects if the debt financing of mining exploration and high risk first-tier lending for SMM development had been excluded, as had been suggested by the experience of the PECAM I project. (iii) The Bank willingness to finance mining sector activity prior to comprehensive refbrm enabled the Bank to participate as the policy dialogue emerged. The Bank established credibility by placing senior technical staff and consultants to work with country counterparts during later phases of project implementation, and was thus well-positioned to help shape the new sectoral framework through the Mining Sector Review of 1989. (iv) The viability of complex and partly untried institutional arrangements for a sector project should be carefully assessed in light of the weaknesses of the existing framework and the Government support for necessary changes. Full use of previous project experience is critical in assessing the viability of these arrangements and designing necessary improvements. Operational and technical assislance objectives should be kept simple and easy to monitor in order to reduce the likelihood of institutional failure. (v) First-tier credit programs should not be operated by Government institutions due to the poor incentives for cost controls and commercial project risk evaluation. If the decision is taken to create a financial intermediary under the responsibility of a sector ministry which lacks technical and financial experience in the field, implementation of such a project should receive particularly careful monitoring. Second-tier credit programs offer significant advantages because (i) commercial first-tier lenders are subject to market forces in allocation of credit and therefore have the incentive for due diligence and (ii) the Government is not liable for loan losses even if the commercial first-tier lender fails to conduct adequate subproject evaluation.  17 Second Stage of the Special Complementary Program of Assistance to Small and Medium Mining (PECAM m Project Completion Report Part II Point of View of the Executing Agencies Regarding Project ImRlementation and Development" The granting of credits to small and medium scale mining under PECAM II enabled the sub-borrowers to develop the mining projects through application of the funds to the acquisition of necessary machinery and equipment; facilitated the installation of the required plants for the beneficiation of metallic and non-metallic minerals; and propitiated the construction of roads, generating an important number of new jobs. Taken together, these factors resulted in the creation of focus points for sustained development. In addition, the implementing agencies of the mining programs substantially improved the infrastructure for the sector through the financing received under PECAM II. During the initial phase, the program was justifiably controlled directly by the Secretariat of Energy, Mines, and Parastatal Industry (SEMIP) through the Technical Secretariat of PECAM. At the appropriate time, beginning in September 1989, to improve the program the administration was transferred to the Mining Development Commission. The financing was channeled through three executing agencies: a) The Mining Development Commission (CFM) - encharged with the authorization of direct credits to metallic small and medium mining. b) The Mining Development Trust Fund (FFM) - attended the financing of non-metallic mining projects, primarily through discounted credits channeled through commercial banks. c) The Mineral Resources Council (CRM) - applied credits to exploration studies and to the quantification of mineral reserves. Due to the legal limitations to the operation of the three abovementioned organizations, the Mining Development Trust Fund was the only agency to channel credits via commercial banks. 1/The original Spanish text of Part 11 is contained in Annex 1.  18 Regarding the credits authorized by the Mining Development Commission, a series of problems came together to make a large number of the projects inviable: 1) The drop in the price of metals. 2) Errors in the conduct of studies. 3) Errors in the determination of reserves and the estimation of mineral quality. 4) Insufficient supervision and follow-up. With respect to the credits authorized by the Mining Development Trust Fund, several of the abovementioned problems did not effect the results of these subprojects. For example, the fall in metals prices did not impact the subprojects because this institution dealt only with non-metallic projects. In addition, the Trust Fund supported its credits with adequate supervision, resulting in success for the majority of these projects. During implementation of the program, especially during the 1990- 1992 period, the Federal Government undertook an aggressive program of restructuring with the goal of increased efficacy and efficiency in public administration, during which a large number of public organizations, dependencies, and companies were privatized, liquidated, or merged. With the enactment of the new Mining Law, new responsibilities were assigned to the government agencies in the sector. For this reason, the Mining Development Commission disappeared and the functions of the Mining Development Trust Fund and Mineral Resources Council were readapted and strengthened. The majority of the functions of the CFM were transferred to the FFM. This transfer has resulted in important advantages, which include the following: a) A substantial decrease in operating expenses through a reduction from 650 to 250 employees. b) The creation of an institution with strong financial capabilities to channel and direct resources based on profitability, productivity, and efficiency. c) The interaction of the first tier banks with a highly capable financial agent which facilitates the identification of credit operations. d) The clear distinction between the inherent functions of the Trust Fund, which are exclusively financial and entail evaluation and control, and the direct responsibilities of the creditors. e) The possibility of realizing the improved evaluation and follow-up of the projects.  19 PART III: STATISTICAL INFORMATION 1. RELATED BANK LOANS LOAN TITLE PURPOSE YEAR OF STATUS COMMENTS APPROVAL Loan 1820-ME To support the Government development 1980 Closed PCR was released to Small and Medium strategy for small and medium scale mining 5/31/86 the Executive Directors Scale Mining (SMM) by financing (i) investment needs of on 5/11/90 Development SMM enterprises, (ii) construction of Project beneficiation plants and laboratory facilities, (iii) and training and technical assistance to the executing agencies. Loan 3359-ME To support the Government program to 1991 Effective Overall project progress Mining Sector deregulate the mining sector and stimulate 11/25/91 to date is satisfactory. Restructuring private domestic and foreign investment Loan is expected to be Project through the establishment of an appropriate closed on June 30, policy and institutional framework, to build 1996. broader financial market support to the mining industry, and to help finance the expected surge in demand for investment funding.  20 2. PROJECT TIMETABLE Date Date Date Item Planned Revised Actual Identification 07/84 07/84 Preparation 09/84 09/12/84 Pre-appraisal * * Appraisal Mission 11/84 11/13/84 Post-Appraisal Mission 01/85 01/20/85 Loan Negotiations 03/85 03/25/85 Board Approval 05/85 05/21/85 Loan Signature 06/85 10/05/85 10/05/85 Loan Effectiveness 08/85 01/07/86 04/02/86 Loan Closing 12/31/91 12/31/92 12/31/92 Loan Completion 12/31/91 12/31/92 04/30/93 'The pre-appraisal mission was upgraded to appraisal mission.  21 3, Loan Disbursements (Millions of US$) Period Ending Appraisal Actual Actual/ Estimate Estimate FY86 Dec. 85 1.5 0.0 0.0% Jun. 86 6.3 8.3 131.7% FY87 Dec. 86 14.7 8.3 56.5% Jun. 87 25.7 12.4 48.2% FY88 Dec. 87 38.3 16.5 43.1% Jun. 88 52.1 23.3 44.7% FY89 Dec. 88 65.2 58.1 89.1% Jun. 89 76.7 77.0 100.4% FY90 Dec. 89 86.2 86.2 100.0% Jun. 90 93.5 91.8 98.2% FY91 Dec. 90 98.8 99.9 101.1% Jun. 91 102.5 103.0 100.5% FY92 Dec. 91 105.0 103.5 98.6% Jun. 92 105.0 104.3 99.3% FY93 Dec. 92 105.0 104.4 99.4% Jun. 93 105.0 105.0 100.0% Date of Last Disbursement: 4/30/93. Remaining balance of $44,605.59 cancelled. Loan Disbursements Estimated vs. Actual 120.0 100.0 Z 80.0 60.0 40.0 20.0 0.0 00 00 00 00 Em ON ONcta Estimated Actual  22 4. FINANCING AT APPRAISAL BANK VS. LOCAL FINANCING BY CATEGORY (Millions of USS) Component IBRD Local Total Counterpart Category 1 76 83 159 Category II 26 21 47 Category III 3 1 4 Total 105 105 210 FOREIGN EXCHANGE REQUIREMENTS BY CATEGORY (Millions of US$) Component Local Cost Foreign Bank Financing Exchange of Local Cost Category I 99 60 16.2% Category II Equip. Leasing 8 5 Beneficiation 14 10 Laboratories 2 4 Expl. Equip. 1 3 Sub-total 25 22 16.0% Category III 2 2 50.0% Total Project 126 84 16.7%  23 5. PROJECT COSTS BY COMPONENT (Millions of US$) Category Appraisal Actual % Difference Investments by SMMs 159.0 238.2 49.8% Investments by CFM, FNM, CRM Equipment Leasing 13.0 1.2 -91.1% Beneficiation Plants 24.0 2.8 -88.4% Laboratories 6.0 1.4 -76.2% Exploration Equipment 4.0 0.0 -100.0% Sub-total 47.0 5.4 -88.6% Technical Assistance 4.0 2.8 -29.2% Total 210.0 246.4 17.3% 6. PROJECT FINANCING BY SOURCE (Millions of US$) Source Appraisal Actual % Difference IBRD 105.0 105.0 0.0% GOM 85.0 36.0 -57.6% Private 20.0 105.4 426.8% Total 210.0 246.4 17.3%  24 7. PROJECT FINANCE BY SOURCE AND USE (Millions of US$) IBRD GOM Private Total Category I CFM 28.2 11.1 37.4 76.7 FFM 69.3 22.2 67.4 158.9 CRM 1.4 0.7 0.5 2.6 Total 98.8 34.0 105.4 238.2 Category II CFM 2.9 1.7 0.0 4.6 FFM 0.0 0.0 0.0 0.0 CRM 0.5 0.3 0.0 0.8 Total 3.4 2.0 0.0 5.4 Category III CFM 1.5 0.0 0.0 1.5 FFM 0.0 0.0 0.0 0.0 CRII 1.1 0.0 0.0 1.1 Technical Secre 0.2 0.0 0.0 0.2 Total 2.8 0.0 0.0 2.8 CFM Total 32.6 12.8 37.4 82.8 FFM Total 69.3 22.2 67.4 158.9 CRM Total 3.0 1.0 0.5 4.5 Technical Secre 0.2 0.0 0.0 0.2 Project Total 105.0 36.0 105.4 246.4  8. USE OF PECAM FUNDS BY IMPLEMENTING AGENCY AND PURPOSE (Millions of US$) Iand Civil Equipment Working Preoperating Total Works Capital Expense CFM 0.0 6.2 27.9 3.8 7.4 45.4 FNM 0.9 6.6 74.8 7.7 1.5 91.5 CRM 0.0 0.0 0.0 0.0 4.0 4.0 Technical Secretariat 0.0 0.0 0.0 0.0 0.2 0.2 Total 0.9 12.8 102.7 11.6 13.1 141.0 CFM 0.0% 4.4% 19.8% 2.7% 5.3% 32.2% FNM 0.6% 4.7% 53.0% 5.5% 1.0% 64.8% CRM 2.8% 2.8% Technical Secretariat 0.2% 0.2% Total 0.6% 9.1% 72.8% 8.2% 9.3% 100.0% Note: PECAM funds include IBRD and GOM resources but exclude private investment.  26 9. PROJECT RESULTS Indicator Appraisal Actual Estimate Result* Employment Created CFM 2,015 FNM 2,876 CRM N/A Total 5,000 - 6,000 4,891 Employment Preserved CFM 1,721 FNM 10,855 CRM N/A Total No estimate 12,575 Incremental Production** CFM 66,897 FNM 903,053 CRM N/A Total US$ 110 m 969,949 Number of SMM beneficiaries CFM 201 FNM 263 CRM 26 Total 200 490 *Employment and production figures were derived by applying ex-post data (9 of subproject appraisal goal met) to ex-ante estimates of increased absolute production and employment. Ex-post data did not include explicit estimates of incremental tons produced or overall employment gains. **CFM incremental production represents tons of raw ore and/or concentrates; FNM figures refer to incremental finished units and/or tons produced.  27 Ex-Post Sample Characteristics in Current U.S. Dollars Sample Total Project % of Total Bank Credit Perf. Metal* 12,861,373 45.6% Non-perf Metal* 6,789,600 24.1% Metal Total 19,650,973 28,200,000 69.7% Non-metals 39,516,156 69,300,000 57.0% Total 59,167,129 97,500,000 60.7% Govt Credit Perf. Metal 3,359,309 30.3% Non-perf Metal 1,697,400 15.3% Metal Total 5,056,709 11,100,000 45.6% Non-metals 9,966,946 22,200,000 44.9% Total 15,023,655 33,300,000 45.1% Total Credit Perf. Metal 16,220,682 41.3% Non-perf Metal 8,487,000 21.6% Metal Total 24,707,682 39,300,000 62.9% Non-metals 49,483,102 91,500,000 54.1% Total 74,190,784 130,800,000 56.7% *Performing metallic subprojects **Non-performing metallic subprojects  28 Ex-Post Study: Subproject Finances in Current U.S. Dollars Projected Actual Variance Total Project Cost Perf. Metal 23,922,671 21,128,470 -11.7% Non-perf Metal 16,098,100 43,032,852 167.3% Metal Total 40,020,771 64,161,322 60.3% Non-metals 79,262,790 77,469,205 -2.3% Project Total 119,283,561 141,630,527 18.7% Fixed Assets Perf. Metal 22,391,549 16,290,045 -27.2% Non-perf Metal 15,579,800 42,696,652 174.1% Metal Total 37,971,349 58,986,697 55.3% Non-metals 73,017,407 70,595,341 -3.3% Working Capital Perf. Metal 1,531,122 4,285,580 179.9% Non-perf Metal 518,300 336,200 -35.1% Metal Total 2,049,422 4,621,780 125.5% Non-metals 6,245,320 5,964,514 -4.5% Own Resources Perf. Metal 7,625,824 4,329,065 -43.2% Non-perf Metal 7,611,100 10,896,100 43.2% Metal Total 15,236,924 15,225,165 -0.1% Non-metals 26,830,401 33,808,597 26.0% Resources of Implementing Agency Perf. Metal 153,744 900,417 485.7% Non-perf Metal 0 0 Metal Total 153,744 900,417 485.7% Non-metals 0 0 Other Financing Perf. Metal 96,025 511,570 432.7% Non-perf Metal 0 0 Metal Total 96,025 511,570 432.7% Non-metals 9,513,000 3,124,000 -67.2%  29 Ex-Post Study: Output and Reserves Projected Actual Variance Proven Reserves Perf. Metal 2,663,932 1,516,459 -43.1% Non-perf Metal 930,417 2,413,115 159.4% Metal Total 3,594,349 3,929,574 9.3% Non-metals 119,745,298 115,604,400 -3.5% Likely Reserves Perf. Metal 1,004,654 661,190 -34.2% Non-perf Metal 0 348,928 Metal Total 1,004,654 1,010,118 0.5% Non-metals 168,392,500 185,427,300 10.1% Cotizacion Perf. Metal 4,326 2,772 -35.9% Non-perf Metal 434 710 63.6% Metal Total 4,760 3,482 -26.8% Non-metals 13,146 12,869 -2.1% Production Perf. Metal 449,450 228,300 -49.2% Non-perf Metal 167,500 287,892 71.9% Metal Total 616,950 516,192 -16.3% Non-metals 7,721,606 6,942,359 -10.1 % Increase in Installed Capacity Perf. Metal 300 400 33.3% Non-perf Metal 168 540 221.4% Metal Total 468 940 100.9% Non-metals 509,482 1,366,028 168.1% Note: Units not consistent. Valid in percentage terms only.  30 Ex-Post Study: Use of Funds Projected Actual Variance Use of funds: Land Perf. Metal 223,353 223,353 0.0% Non-perf Metal 0 186,399 N/A Metal Total 223,353 409,752 83.5% Non-metals 269,948 380,000 40.8% Civil Works Perf. Metal 3,504,639 1,942,462 -44.6% Non-perf Metal 5,555,000 9,299,135 67.4% Metal Total 9,059,639 11,241,597 24.1% Non-metals 8,965,825 9,874,646 10.1% Machinery/Equipment Perf. Metal 16,569,299 14,285,740 -13.8% Non-perf Metal 9,019,600 29,601,717 228.2% Metal Total 25,588,899 43,887,457 71.5% Non-metals 55,956,436 56,852,402 1.6% Transport Equip. Perf. Metal 1,001,747 699,948 -30.1% Non-perf Metal 0 771,978 N/A Metal Total 1,001,747 1,471,926 46.9% Non-metals 1,299,084 1,480,503 14.0% Preop. Expenses Perf. Metal 1,093,381 1,330,165 21.7% Non-perf Metal 1,005,200 2,837,423 182.3% Metal Total 2,098,581 4,167,588 98.6% Non-metals 7,396,128 3,583,043 -51.6% Working Capital Perf. Metal 1,530,322 2,646,801 73.0% Non-perf Metal 518,300 336,200 -35.1% Metal Total 2,048,622 2,983,001 45.6% Non-metals 5,375,369 5,298,611 -1.4%  31 Ex-Post Study: Revenues, Income and Employment Impact Projected Actual Variance Income Perf. Metal 44,875,831 6,326,502 -85.9% Non-perf Metal 43,361,321 47,435,900 9.4% Metal Total 88,237,152 53,762,402 -39.1% Non-metals 157,666,807 160,329,306 1.7% Net Profit Perf. Metal 4,879,769 496,861 -89.8% Non-perf Metal 9,558,482 -554,586 -105.8% Metal Total 14,438,251 -57,725 -100.4% Non-metals 14,521,393 14,478,327 -0.3% ROS Perf. Metal 10.9% 7.9% -27.8% Non-perf Metal 22.0% -1.2% -105.3% Metal Total 16.4% -0.1 % -100.7% Non-metals 9.2% 9.0% -2.0% ROI Perf. Metal 20.4% 2.4% -88.5% Non-perf Metal 59.4% -1.3% -102.2% Metal Total 36.1% -0.1 % -100.2% Non-metals 18.3% 18.7% 2.0% Employment Generated Perf. Metal 329 194 -41.0% Non-perf Metal 177 195 10.2% Metal Total 506 389 -23.1% Non-metals 858 404 -52.9% Employment Conserved Perf. Metal 386 161 -58.3% Non-perf Metal 224 190 -15.2% Metal Total 610 351 -42.5% Non-metals 1,302 1,261 -3.1%  10. STATUS OF COVENANTS Agreement and Section Description | Date in Covenant | Revised | Status | Comments l _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ l l__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ I _ _ _ _ _ _ _ _ _ _ __I D ate l l CFM Project Agreement: 2.01 (b) Lending and Leasing Policies OK Full compliance 2.01 (c)(i)(iii) Breakeven pricing for Three years after operation OK Tolling rates increased by government beneficiation plants (tolling rate for each facility to maximize net revenue beginning in increases) 1989. 17 out of 19 beneficiation plants have been privatized or liquidated (4/93). Other 2 to follow. 2.01 (c)(ii) Accounting standards for OK Cost accounting program implemented beneficiation plants for each plant. 3.01 (a) Accounting and reporting OK CFM consolidated statements received standards for CFM heavily qualified acceptance by outside auditor due to poor inflation accounting and missing subsidiary accounts. Accounting policies and practices for reporting of income and loan loss provisions were adjusted in line with Bank recommendations. 3.01 (b) Audit reports submission within OK L six months of fiscal year end.  3.01 (c)(iii) Audit provisions/end use OK External auditors did not conduct certification subproject field visits due to high cost. Instead, Bank required auditor to evaluate CFM policies and procedures for subproject procurement and supervision. CRM Project Agreement: 2.01 (c) Exercising of rights to protect OK High percentage of raw exploration interest of the Borrower programs financed had negative or unknown results. 3.01 (c)(i)(iii) Maintenance of separate OK CRM did maintain separate project Statement of Expenditure accounts audited in line with Auditor accounts General regulations. Delivery of audited accounts to the Bank was substantially delayed. FNM Project Agreement: 6.01 (c) Audit provisions/end use OK External auditors did not conduct field certification visits to clients of 30 first tier lenders to determine end-use of resources. Bank decided to replace this provision with requirement that auditor evaluate FNM monitoring of PFI performance of subproject supervision policies and practices.  34 11. USE OF BANK RESOURCES A. Staff inpu Activity Staff Weeks Appraisal 40.8 Post Appraisal 20.4 Supervision 77.8 PCR 9.7 Total 148.7 Note: No estimate of staff inputs was undertaken during appraisal L Missions Activity Date Number Specialization Number Staff Date of of Persons of Weeks Weeks Report Pre-Appraisal 9/84 5 POF, FNA, OTH 2.5 9 10/84 Appraisal 11/84 5 POF, FNA, OTH 2.5 11.5 11/84 Post-Appraisal 1/85 2 POF, FNA 1.5 2 1/85 Supervision* 10/85 2 POF, FNA 1 2 12/85 Supervision 12/85 1 FNA 0.6 0.6 1/86 Supervision 4/87 2 POF, FNA 2.4 4.8 4/87 Supervision 9/87 3 POF, FNA, OTH 1.5 4.5 10/87 Supervision 2/88 3 POF, FNA 1.5 4.5 4/88 Supervision 2/89 3 POF, FNA, OTH 1.5 4.5 5/89 Supervision* 6/89 4 POF, FNA, OTH 0.5 2 8/89 Supervision 3/91 2 POF, FNA 1.3 2.6 4/91 PCR 12/92 1 POF 1 1 5/93 * Combined with supervision of other projects. Specialties: Project Officer (POF); Financial Analyst (FNA); Legal (LEG); Other (OTH)  35 12. Table I PECAM Organization Chart Coordinating Committee Policy President: Subsecretary of Mines and Energy - Credit Committee (approval of subloans) SHCP NAFIN CFM FNM Technical Secretariat - Appraisal and Approval of Subprojects Technical Secretariat - Technical Studles for PECAM Subsecretary General - PECAM Data Base & Coordination with NAFIN - Channel for Program Funds - Uason with Bank Director - PECAM I Subdirector - PECAM Withdrawals and Project Evaluation Dept. Records Dept. - Chief - Chief - Professional Staff - Professional Staff - Support Staff - Support Staff  36 Table II: PECAM Flow of Funds Diagram 1) |. B I>> Contral Bank of Mexico (BNM) I->>-f NAFINSA [ (Borrower) 2) 1 <(<Rqueats funds for Projoct 'A(<< (<<-National Treasury (NT) Spocial I